City of Port St. Lucie OKs potential settlement with Digital Domain

PORT ST. LUCIE — Nearly 17 hours before the city was set to duel with Digital Domain in bankruptcy court, the City Council unanimously voted to wave a white flag and approve a potential settlement that will hand Tradition Studios over to the city by end of the year.

The proposed settlement, which is subject to court approval before it can be executed, will terminate Digital Domain's lease of Tradition Studios on Dec. 31 transferring exclusive ownership to the city, said Attorney Sean Cork, a Squire Sanders attorney representing the city in the Digital Domain bankruptcy proceedings. Cork, who outlined the settlement to the council Monday night, will present the settlement in a proposed order to federal bankruptcy court Judge Brendan Shannon in Wilmington, Delaware at 1 p.m. Tuesday for final approval.

Once a settlement order is issued, which Cork said could come as early as Tuesday or as late as the end of this week, the city will be fully authorized to begin marketing efforts to locate a replacement tenant or a prospective purchaser without oversight from Digital Domain or the courts, Cork said. Without a tenant, the city would be responsible for making an estimated $3.7 million annual lease payment in January to pay off the $39.9 million in bonds the city used to construct and furnish the studio.

Laptop computers, desks and chairs belonging to Digital Domain and the city will be jointly auctioned off by Digital Domain and the proceeds split between the two parties, according to the settlement. Cork said Digital Domain would keep 100 percent of the sale proceeds from its own equipment, and the city would receive two-thirds proceeds from its sale and give a third to the debtor party to offset the cost of the auction. Some city-owned computer furniture and equipment will remain in Tradition Studios, said Cork.

In exchange for the settlement, Digital Domain asks the city to waive any damages related to breach of the lease agreement, explained Cork. He said the city's unsecured claim was a low priority claim in the bankruptcy case and the settlement is the best outcome for the city.

The settlement will also put to rest objections the city to a motion from Digital Domain to approve an auction of its remaining personal assets. The city filed an objection to ensure none of its property was sold at auction.

" ... It is our recommendation that, that settlement, while like all settlements is not everything that folks would want, it is a reasonable settlement and we would think it would be in the best interest of the city to avoid the cost of potential expensive litigation ...," Cork said.

Details of the settlement were hashed out last week and some details were still being ironed out moments before the meeting, Cork said to the council. The council met with City Attorney Roger Orr Nov. 26 during an attorney-client session to discuss the matter.

If Digital Domain requires more time to auction assets and remains in the building past the Dec. 31 deadline, which Cork said he doesn't expect to happen, the city agrees to allow them more time as long as they agree to pay for security for the facility, insurance and other fees.

However, the city does not waive the right to make claims against any non debtors nor the right to seek claims if there's any damage done to Tradition Studios from when the judge issues a settlement order to when Digital Domain vacates the building. The city also is not waiving its claim on getting back the $7.5 million it issued Digital Domain as part of a $10 million grant agreement.

The grant was issued to Digital Domain with the promise that the company would come to Port St. Lucie and create an estimated 500 jobs by 2014. The digital effects company laid off 346 employees on Sept. 7 and four days later, filed bankruptcy.

After Cork presented the settlement, an item that was a late addition to the agenda, the council was quiet. After a quick question from Vice Mayor Linda Bartz, Councilwoman Michelle Berger swiftly motioned to approve the settlement and council voted yes.

Mayor JoAnn Faiella banged the gavel, looked up at Cork and said smiling, "Good luck."